NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB-' rating on the Riverside County
Transportation Commission, CA's (RCTC) approximately $176.7 million 2013
series A and series B senior lien revenue bonds. Fitch has also affirmed
the 'BBB-' rating on the RCTC's approximately $421.1 million
Transportation Infrastructure Finance and Innovation Act (TIFIA) loan.
The Rating Outlook is Stable.

The affirmations reflect satisfactory project progress to-date with
Fitch's expectation that the SR-91 Express Lanes project will be
delivered on schedule by January 2017 and broadly on budget. Although
actual right of way (ROW) acquisition costs have run higher than initial
forecasts, RCTC is responsible for delivering all necessary ROWs to the
contractor and will assume all related cost increases, outside of
available contingency funds, through a combination of Measure A sales
tax funds, other available resources and project costs savings made
elsewhere. Macroeconomic conditions of Riverside and Orange counties are
showing signs of positive improvement and broadly consistent with
Fitch's expectations at project financial close. In Fitch's view,
prospects for the SR-91 corridor congestion to yield toll revenues
in-line with Fitch original base case remain reasonable. The flexibility
offered by the debt structure through the TIFIA loan provides added
protection during ramp-up.

KEY RATING DRIVERS:

Moderate Completion Risk: The terms of the fixed priced design-build
(DB) construction contract with Atkinson Contractors and Walsh
Construction Company, including cost and schedule contingencies, are
consistent with investment grade standards. Security package includes
100% parent guarantees and liquidated damages, which adequately
mitigates completion risk. Project construction complexity is viewed to
be straightforward and consists mostly of lane widening. Continued road
operation during construction and relocation of certain existing
infrastructure as well as the acquisition of ROW adds some complexity to
the project. Completion Risk - Midrange

Demonstrated Traffic Volumes: The highly congested SR-91 corridor is the
only major surface transportation facility connecting Orange County and
Riverside County. The project represents an extension of existing
express lanes already operating inside Orange County for 18 years and
has an established traffic demand. Nevertheless, the expansion of free
alternative competing general purpose lanes directly next to the express
lanes, uncertainty regarding the future economic environment and further
future corridor improvements, could all impact congestion levels in the
corridor. Revenue Risk: Volume - Midrange

Some Price Certainty: RCTC tolling policy will permit relatively
frequent toll adjustments to manage traffic throughput. Since many users
are expected to be familiar with the toll rate structure in adjoining
Orange County managed lanes, Fitch believes there will be some
understanding of pricing power. Similar to other managed lanes, this
project is vulnerable to compounded traffic and price declines during
economic downturns. Revenue Risk: Price - Midrange

Infrastructure Risk is Well Managed: Upon completion, road capacity in
each direction will increase from five to eight lanes. Renewal and
replacement (R&R) expenditures are validated by an independent engineer
providing comfort, as does a forward-looking R&R reserve. The existing
toll facility agreement for the project provides a 16-year tail after
debt maturity and should allow for a more flexible timetable for long
term asset reinvestment. Infrastructure Renewal and Replacement -
Midrange

Strong Features Mitigate Back-Loading: All senior lien revenue debt is
fixed rate and amortizing, and the TIFIA structure allows for some
flexibility between mandatory and scheduled interest payments. The
aggregate debt service schedule is back loaded, with maximum annual debt
service (MADS) occurring in 2049, and may be exacerbated by any
necessary scheduled interest deferral. The additional bonds test (1.30x)
and distribution test (1.30x) reference TIFIA scheduled debt service,
which provides additional flexibility. All obligations must be met at
1.0x, including R&R expenditures. Debt Structure - Midrange

High Leverage, Adequate Coverage: The Fitch's rating case yields minimum
debt service coverage, including senior and TIFIA mandatory, of 1.30x in
the years between 2022 and 2049. Given the inherent TIFIA flexibility,
adequate financial cushion to deal with weaker conditions exists on both
liens of debt. The financial metrics indicate a minimum loan life
coverage ratio of 2.05x in the sponsor case and 1.24x in the Fitch
rating case. Leverage is initially very high and evolves down overtime,
as would be expected immediately post-construction for such a facility.

RATING SENSITIVITIES:

--Unforeseen construction delays and cost overruns;

--Traffic and revenue performance at or below the Fitch rating case
and/or operating and R&R expenses materially above expectations that
cause financial flexibility to be reduced could lead to rating pressure.

--Traffic and revenue performance in line with or better than the
sponsor case, with no additional debt issuances may positively improve
financial metrics and flexibility.

SECURITY:

The senior lien revenue bonds and subordinated TIFIA loan are secured by
a pledge of project net toll revenues derived from the operation of the
project and the related senior and TIFIA debt service reserve funds. The
priority of the TIFIA Loan springs to parity with the senior secured
obligations and any other permitted senior secured indebtedness upon the
occurrence of a bankruptcy related event.

CREDIT UPDATE:

The project's substantial completion date remains unchanged with
construction anticipated to be completed in early January 2017.
Pre-construction activity has commenced in March 2014 and major
construction is expected to start by July 2014. Site preparations
continue on schedule and all remaining environmental permit approvals
are expected to be obtained by the end of 2014. Utility relocations and
railroad crossing approvals are expected to progress on or ahead of
schedule. RCTC is responsible for ensuring ROW availability to the
contractor by specified dates to allow advancement of construction
phases. As of April 2014, RCTC has acquired 128 out of 241 parcels and
ROW is presently expected to be 100% available to the contractor by
April 2015. While considerable work remains to complete the necessary
ROW acquisitions, the board continues to support the eminent domain
process and RCTC does not anticipate any significant delays in the
schedule due to ROW.

Through April 2014, change orders as well as cost savings in other areas
have modestly decreased the design-build contract value by approximately
$300 thousand to $632.3 million. Other pending change orders are
expected to result in additional cost savings north of $1.8 million
mainly from value engineering changes. On the other hand, RCTC's direct
project costs have exceeded the original forecast and are now estimated
at $616.4 million, or approximately $95 million above the original
projections. Major cost increases are attributable to ROW-related costs
overruns and the recently executed toll system installation and
integration contract. Based on revised estimates, total ROW acquisition
costs are estimated at $225 million, or about $81 million more than
originally budgeted. In addition, ROW-related legal and management costs
are expected to exceed projections by about $12 million. To mitigate the
impact of commission's cost increases, RCTC increased its contingency
budget to $66 million from $62 million, which includes $31 million for
ROW and $25 million for design-build costs (4% of the design-build
contract). To the extent needed, additional funding is expected to come
from available contingency funds, commission's sources, including equity
contributions and Measure A sales tax revenues and cost savings.

The proceeds of the senior lien revenue bonds and the TIFIA loan, along
with $462 million in sales tax bonds and about $216 million in RCTC and
state funds are being used to fund the project. The project consists of
the development, design, finance, construction, maintenance and
operation of SR-91 Express Lanes in Riverside County. Expansion of the
corridor includes extension of the two existing SR-91 Express Lanes from
the Orange/Riverside County line approximately eight miles to the
Interstate 15/SR-91 interchange in Riverside County. The project will
also involve the construction of one new general purpose lane in each
direction from SR-71 to I-15, ultimately providing two tolled Express
Lanes, five general purpose lanes and an auxiliary lane in each
direction. There will only be three points of ingress/egress: at the
Riverside County/Orange County line; west of I-15; and, I-15, south of
the SR 91. The project also includes future improvements (2035)
including an additional general purpose lane and improvements to the
SR91/SR71 interchange.

SR-91 originates in southern Los Angeles County at the Harbor Freeway
(I-110), passes through northern Orange County, and terminates at the
SR-60/91/215 interchange in Riverside County. Geographically constrained
by the Santa Ana Mountains, the corridor is heavily congested and serves
as an important commuter route linking a diverse employment base in
Orange County with a relatively affordable housing base in Riverside
County.

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